from the hitting-back-hard dept

Last year, we wrote about a crazy patent troll, named Innovatio, who had sued a ton of restaurants and hotels, claiming that anyone who used WiFi was violating its patents. It was even claiming that individuals who use WiFi at home infringed too -- but that it wouldn't go after them "at this time." Instead, it preferred to focus on shaking down tons of small businesses, offering to settle for $2,500 to $3,000 -- which is cheaper than hiring a lawyer to fight it, no matter how bogus. We noted at the time that Motorola and Cisco had gone to court to try to get a declaratory judgment to protect its customers.

Well, it seems that the effort to stop these lawsuits has been taken to the next level. Cisco, Motorola and Netgear have now filed an amended complaint which rips Innovatio apart, and doesn't just seek a declaratory judgment of non-infringement, but outlines a parade of lawbreaking by Innovatio, arguing that it's actually involved in racketeering and conspiracy among other things. The full filing, embedded below, is fascinating. The filing reveals some background about Innovatio, which apparently is connected to Noel Whitley, who had been VP of Intellectual Property at Broadcom... but then left to create Innovatio, which just so happens to have acquired most of its patents from... Broadcom. Among the parade of insanity charged against Innovatio:

Motorola, Cisco and Netgear all have licensed the patents in question, meaning that users of that equipment are covered by those patents under the concept of patent exhaustion (basically, if you buy a licensed product, it's licensed). Innovatio conveniently doesn't mention this to the people it sends threat letters to.

The patents in question are part of commitments to IEEE that they'll only be licensed on RAND terms, but the threat letters demand way more than would be considered "reasonable."

Incredibly, Innovatio includes some expired patents in the list of patents it has threatened people over. That's a massive no-no. Once a patent is expired you can't demand a license for it. At all.

Innovatio apparently tells the people it threatens that it'll be cheaper to just settle, rather than to even investigate the claims that it's making -- and has told people that the manufacturers in question aren't defending their customers, which is proven false by the lawsuit, which, again, was filed soon after Innovatio popped up on the scene.

In an attempt to appear more legit, Innovatio claims that the patents in question have "generated in excess of $1 billion in settlements and license fees" to scare small businesses into complying. It leaves out that it appears to be basing this number on the famous broad patent fight settlement between Qualcomm and Broadcom, which was a wide-ranging cross licensing program, that has nothing to do with Innovatio or its specific patents.

There's a lot more in there, but if the allegations by the vendors are accurate, Innovatio's actions are really questionable. Even if people agree that the patents in question are legit, the fact that the vendors have already licensed them makes these actions quite incredible. The lawsuit claims that Innovatio has sent threat letters to an astounding 8,000+ businesses, mostly way too small to be able to understand the details of what's happening.

Defendants prey upon end users that are not involved in the development or supply of the accused technologies, demanding exorbitant licensing amounts that breach numerous obligations on the patents and greatly exceed any notion of reasonableness. In furtherance of their plan, Defendants threaten protracted negotiations with onerous burdens on end users, and offer supposed “discounts” for promptly paying Innovatio without engaging in such negotiations, while making it clear that Innovatio will initiate costly litigation with anyone that does not acquiesce (something it cannot realistically do given the 8000-plus letters sent throughout the U.S.). Under these circumstances, Innovatio circumvents its obligations and illegally obtains and seeks to obtain licensing fees to which it is not entitled, at great detriment to the Plaintiffs in this action, their customers, and the public generally.

Oh yeah, as for that whole "expired patent" thing? That seems especially egregious:

To date, at least ten of the Innovatio Patents have expired, yet those patents continue to be highlighted in Defendants’ threat letters in furtherance of their licensing campaign. Yet Innovatio states to its licensing targets that “Innovatio proposes granting [the licensing target] an upfront, paid-up license for its use under all of 31 of the issued Innovatio Patents,” when those targets have no liability on and therefore no need of such a license to expired patents. For example, on May 9, 2012, almost one year after the ‘771 patent expired and almost six months after the ‘311 patent expired, Innovatio sent a demand letter to [redacted] .... Innovatio did not provide notice of these or its other patents to [redacted] before expiration. Notwithstanding the expiration of these patents and other patents, Innovatio’s May 9, 2012 demand letter stated “[t]he operation and use of any [WLANs that use the IEEE 802.11 communication protocols] by [redacted] constitutes infringement of at least the following Innovatio Patents: . . . U.S. Patent No. 5,940,771 . . . [and] U.S. Patent No. 6,374,311.” .... Yet circumstances here including a failure to comply with 35 U.S.C. §287, confirms that Innovatio cannot assert infringement or recover damages on at least these expired patent claims. On information and belief, Innovatio never disclosed that these patents had expired, or that its remedies were limited, and the purpose behind inclusion of these patents is to inflate the size of Innovatio’s portfolio, instill fear, increase fees and costs to investigate, and force its targets to capitulate promptly to Innovatio’s unlawful demands.

The filing also includes standard claims of non-infringement and invalidity of the patents in question, but the highlighting of these other behaviors by Innovatio are really quite stunning. Even in cases of extreme patent trolling it's pretty rare to see such egregious behavior. Every so often we see RICO claims being used to counter trollish behavior, but they rarely work. However, the details in this case suggest that if a RICO charge is going to stick, this seems like a reasonable case for it to happen.

from the ouch dept

The jury in the Samsung/Apple patent fight took nearly everyone by surprise by rushing through its job and finishing it way, way, way before anyone expected. They didn't even ask any questions and with about 700 questions to answer, they breezed through it in no time. It was not a total victory for Apple (apparently the design patent on rounded-edge rectangles wasn't infringed), but it was pretty close. In the end, Samsung was found to infringe an awful lot of things (and sometimes willfully) and the the final bill is a stunning $1.05 billion owed to Apple. There's still a lot to sort through in the details, but this is a massive victory for Apple. Of course, Samsung has probably already written up its appeal (or will ask the judge to set the jury verdict aside or something), so this case is likely to be around for many years, but yet again we see just how ridiculous patent law can be. What the hell is wrong with competing in the marketplace? If Apple thinks Samsungs' phones and tablets are too similar? Well, keep on innovating. It's called competition, and now we'll have less of it...

Minor update: After the rush, the judge came back to point out two problems with the verdict -- including the jury awarding damages in cases where it had not found infringement. While this will be corrected and won't change the results much, it certainly suggests that the jury rushed through this and may not have taken this particularly seriously. When you start talking about the numbers being thrown around in damages here, at some point, it must start to feel like play money. But it's a pretty big indictment of the jury itself that it would make a mistake like this. It raises significant questions about how careful they were in getting to a verdict vs. how quickly they wanted to be done in time for the weekend.

from the important-question dept

With the Apple/Samsung case finishing up, James Allworth, over at HBR, has an excellent post wondering why it matters if one company copies from another? A few years ago, we wrote about a book that pointed out that copying and then innovating on the copies is a perfectly reasonable and important business strategy. Allworth points to a new book (one I've been looking forward to for a while) by Chris Sprigman and Kal Raustiala (who we've quoted numerous times) called The Knockoff Economy: How Imitation Sparks Innovation.

He then takes the lessons of that book and applies it to the Apple/Samsung fight, noting that even if we assume they were imitating each other, that seems to have only encouraged further innovation, not less:

If you go back to the mid-1990s, there was their famous "look and feel" lawsuit against Microsoft. Apple's case there was eerily similar to the one they're running today: "we innovated in creating the graphical user interface; Microsoft copied us; if our competitors simply copy us, it's impossible for us to keep innovating." Apple ended up losing the case.

But it's what happened next that's really fascinating.

Apple didn't stop innovating at all. Instead: they came out with the iMac. Then OS X ("Redmond, start your photocopiers"). Then the iPod. Then the iPhone. And now, most recently, the iPad. Given the underlying reason that Apple has been bringing these cases to court was to enable them to continue to innovate, it's hard not to ask: if copying stops innovation, why didn't Apple stop innovating last time they were copied? Being copied didn't stop or slow their ability to innovate at all. If anything, it only seemed to accelerate it. Apple wasn't able to rest on its laurels; to return to profitability, and to take the mantle they hold today of one of the technology industry's largest companies, they had to innovate as fast as they could.

It's the same story we've been explaining for years. History and tons of studies have shown over and over and over again that competition drives innovation, because innovation is an ongoing process. Thus, when others can copy you, that actually accelerates innovation by giving the original incentives to stay ahead in the marketplace, and develop the next great thing. Research has also shown that it's not as easy as you think to "just copy" because you only see the superficial aspects to copy, rather than having the deeper understanding of what works and what doesn't that a market leader often gains.

In fact, when you understand that, you realize that patents can actually slow down innovation by letting a company rest on its laurels, and not have to continue to rapidly innovate. Other companies can't build on what they did first, and so they don't have the same incentives to continue to advance the market forward. And the Apple/Samsung fight in the market appears to support that.

If Apple ends up winning this case against Samsung — and either stops Samsung from releasing their phones and tablets to the market, or charges them a hefty license fee to do so — does anyone really believe that the market will suddenly become more innovative, or that devices will suddenly become more affordable? Similarly, if Samsung wins, do you really believe that Apple will suddenly slow its aggressive development of the iPhone and iPad? It's certainly not what happened last time they lost one of these cases.

Now, if you're with me so far, then I don't think it's a leap to suggest that having these companies duke it out in court over "who might have copied who" is counterproductive. All these lawsuits flying around suggest that everyone is already copying each other, anyway. A better solution? Let's have these companies solely focused on duking it out in the marketplace — where consumers, not courtrooms, make the decisions about innovation. In such a world, the best defense against copying isn't lawsuits, but rather, to innovate at such a rate that your competition can't copy you fast enough. That, to me, sounds like an ideal situation not just for consumers — but for the real innovators, too.

"Apple has made a clear showing that, in the absence of a preliminary injunction, it is likely to lose substantial market share in the smartphone market and to lose substantial downstream sales of future smartphone purchases and tag-along products," Judge Koh said in Friday's ruling.

First of all, this seems to be yet another admission by Apple that it just can't compete in the marketplace against Samsung. Such a ruling seems to scream out to potential buyers: hey, check out the devices that even Apple admits you'd want over its own. But, more importantly, "losing substantial market share" is what competition is all about. If someone comes out with a better product, then the other company should lose substantial market share. That doesn't deserve an injunction. That harms the market, who clearly -- even by Apple's own admission, apparently -- wants the other product more.

The fact that two phones will compete is no reason to ban a phone. Let them compete. Let the market decide.

Even more bizarre is why an injunction should be issued at all. Following the MercExchange decision, courts are only supposed to issue injunctions in exceptional cases. If it's an issue that can be dealt with by requiring a royalty, then there's no reason to issue an injunction.

Samsung, of course, is appealing this and asking that the injunction be put on hold until that appeal is heard. In the meantime, some are pointing out that, for all of Apple's insistence that Samsung copied the designs of its phone and tablet from Apple, you could easily make the argument that Apple got some inspiration from Samsung as well:

And really, that's the point. Innovation and advancement involve all sorts of copying, but also improvements. It goes back and forth. Attacking one party for copying another misses the point, limits competition and harms consumers. It's too bad the US patent system and the courts now want to aid that process.

from the economic-reality dept

This one's from a few week's back, but a few people have called it to my attention. Nilay Patel over at The Verge argued that because various companies offering Android phones have been able to design around a couple of Apple patents that have made their way into lawsuits -- #7,469,381 which covers the "scrollback" bounce when you scroll to the end of a page, and #7,657,849, which covers the "slide-to-unlock" concept -- that there's "really no day-to-day impact on the consumer" from the big patent fights going on over smartphones.

That seems like a rather simplistic analysis. Patel is right that many companies are "designing around" these overly broad and somewhat silly patents, and so it doesn't mean that Android phones aren't available. But that doesn't mean that there's no real impact on consumers. While it can't be quantified directly, there are numerous ways in which these patents are likely impacting the results. First, there's a matter of cost. The legal fights over patents are quite expensive, and that's almost certainly keeping prices on these devices somewhat higher than they might otherwise be. Second, the money and time it takes to do that "designing around" potentially slows the development of these phones. Third, those same resources could have been put elsewhere, working on additional innovations that would make the phones better and more valuable. Instead, they're forced to reinvent the wheel without doing the same scrollback or slide to unlock. Finally, while some will claim that forcing these companies to invent around the patents can lead to new innovations, there's little evidence to support this claim. Certainly it might happen accidentally, but letting developers come up with new innovations based on their own experiments and what the market tells them is always going to be more efficient than stumbling on some innovation because you're trying to avoid the artificial monopoly of a patent.

Of course, this is one of the difficult things in discussing the problems of the patent system. People insist they can't be that bad because these devices are still on the market. It's difficult to see or even explain the innovations that we don't have because of this, or even to show how the pace of innovation is almost certainly slower because of this, but that's exactly what plenty of research has shown for years. No one says that innovation stops completely because of patents, but we have significant concerns about how they impact the overall pace of innovation, as well as the specific direction of innovation. While it might not seem to have a "day-to-day impact on the consumer," chances are it's having quite a large one. We just can't see how big.

from the thus,-infringing-a-patent dept

All the way back in 2001, we wrote about how the brilliant satirists at Despair Inc. successfully trademarked :-( and announced that they planned to sue 7 million internet users for violating the trademark. The actual announcement was pretty funny -- even though not everyone got the joke. In 2006, we also had a story that mentioned a whole bunch of patents and patent applications related to emoticons.

It appears that one of those is now being used in a lawsuit against Samsung and RIM for having the gall to create a button that makes it easy to pick an emoticon without typing it in. The patent in question (US Patent 7,167,731) really is for having a button that lets you pick emoticons. How this is possibly patentable is beyond me. But, for some reason, examiner Lee Nguyen thought it was somehow non-obvious. The patent was originally assigned to Wildseed, a mobile accessories firm that AOL bought in 2005. The patent itself then went to Varia Mobil, who moved it to Varia Holdings to Varia and back to Varia Holdings. It's Varia Holdings bringing the lawsuit. Varia appears to just be a trolling operation (of course).

It's fairly stunning that anyone considered this a valid patent at any point. That it's now being used as the basis for a lawsuit should (once again) raise significant questions about the USPTO's approval process for patents.

from the that's-chutzpah dept

After years of not suing anyone (but always threatening that it might, someday), Intellectual Ventures has become more and more aggressive of late in suing lots of companies. A few weeks ago it sued AT&T, Sprint and T-Mobile over a bunch of patents that (of course) involved some of IV's favorite shell companies. Just as it was preparing this lawsuit, a VP from IV went public with an attempt to argue that all this litigation is a sign of innovation at work. The article is rather shocking in how it presents its argument. It mainly relies on false claims that correlation means causation, concerning historical periods of innovation and lawsuits over patents. Of course, what it ignores is that the patent fights often come right after the innovation, not before. In other words, the patent battles aren't a sign that innovation is working. Rather it's a sign of patent holders freaking out that others are innovating. It's entirely about hindering innovation, not helping move it forward.

M-CAM also questions the claims that these lawsuits have anything at all to do with innovation, and hint at more nefarious reasons for the use of a bunch of shell companies:

Is IV’s patent litigation helping inventors or investors? Considering that the bulk of the patents in suit were each “acquired” from what the USPTO characterizes as a “merger” with a different relatively unknown LLC, we’ll let you decide. Seems to us that it simply represents an attempt to use opacity and “hidden weapons” for a tactical assault having ABSOLUTELY NOTHING to do with innovation. In fact, these kinds of structures are also typically employed for tax “optimization” which is to say, to avoid paying taxes for any economic gains resulting from a successful assault, ahem sorry again, we mean “settlement”.

By the way, you may have noticed that Verizon is conspicuously absent from the list of mobile operators being sued here. That's because Verizon paid the entrance fee and is a "member" in the IV club... which apparently only cost the company $350 million. Oh yeah... and it then became an enabler. One of the patents in the new lawsuit... once was owned by Verizon.

from the live-by-the-sword dept

It's difficult not to look cynically at Microsoft's latest move to file an antitrust complaint in the EU over Motorola's patent royalty rates, and think about just how obnoxiously hypocritical Microsoft is being as a company on this particular issue. First off, Microsoft has become a pretty significant patent aggressor over the past few years, filing lawsuits and pressuring companies to pay up. It's also been a huge fan of patent FUD -- especially against open source competitors. Most people assume that Microsoft was the main player behind SCO's quixotic (but costly and distracting) legal battle against Linux. Then, of course, every so often Microsoft officials insist that Linux infringes on a bunch of its patents, but it never wants to make clear which ones. More recently, of course, Microsoft has been demanding license fees for its patents from a variety of companies making use of Android -- to the point that some have argued Microsoft makes more off each Android installation than each Microsoft Phone installation.

Of course it was partly Microsoft's aggressive patent position against Android that put Google in the position of feeling compelled to buy Motorola Mobility to get its patent portfolio, mainly for the sake of protecting itself and having a bunch of patents that it could use as a shield against a lawsuit from the likes of Microsoft. Of course, Microsoft was already suing Motorola over the company's use of Android.

A few weeks ago, we discussed the tough spot that Google was in over Motorola's patents. The company has indicated that would keep in place Motorola's current patent licensing strategy. While many of us would prefer that Google make a big statement by freeing or opening up many of these patents, the company is actually in something of a ridiculous position: if it does that... its competitors (mainly Microsoft) will claim anti-trust violations by saying that the company is using its market position to undercut the prices that other charge.

It's other choice? Keep the current rates. And that's what it's indicated it would do... so the second that the EU and the US approved the merger, Microsoft files this antitrust complaint, arguing that the rates Motorola charges for its patents is too high. It's a damned if you do, damned if you don't position for Google. Keep the rates as they are, and they're violating antitrust rules by charging too much. Cut the prices or free up some of the patents, and it's an antitrust issue for leveraging their position and "dumping" in the market.

Of course, Microsoft's almost gleeful blog post about its complaint ignores all of this reality and history, and tries to position it as if Motorola and Google are trying to "kill" web and mobile video by charging too high a royalty rate. Frankly, for anyone who knows anything about Microsoft's patent practices over the past few years, they'll see through this and recognize how laughable Microsoft's claims are.

Either way, the situation is ridiculous. Fighting over patents doesn't help bring any new innovations to market. It just diverts money to the lawyers.

from the trivial-patents dept

Earlier this year, Microsoft continued its shakedown war against all things Android by suing Barnes & Noble for patent infringement over the Nook. As we discussed, B&N is fighting back in a big way, claiming that Microsoft's shakedown tactics are an antitrust violation. As that effort moves forward, it's beginning to reveal a ton of useful info. While Microsoft continues to try to keep the patents it's using in these shakedowns "secret," B&N has been revealing them. Groklaw has the details:

The patents, we read, "cover only arbitrary, outmoded and non-essential design features" and yet Microsoft is demanding "prohibitively expensive licensing fees", in effect asserting "veto power" over Android's features. One aspect of the license, Barnes & Noble tells us, was a demand to control design elements, requiring designers to adhere to specific hardware and software specifications in order to obtain a license. That, Barnes & Noble says, is "oppressive and anticompetitive". I think it's accurate to say that the company believes it is illegal.

Barnes & Noble asserts that Microsoft is attempting "to use patents to drive open source software out of the market," saying it, in essence, is acting like a patent troll, threatening companies using Android with a destructive and anticompetitive choice: pay Microsoft exorbitant rates for patents, some trivial and others ridiculously invalid or clearly not infringed, or spend a fortune on litigation.

Beyond revealing more of the patents, the company, in its filings, makes it clear what it believes Microsoft is doing:

Instead of focusing on innovation and the development of new products for consumers, Microsoft has decided to invest its efforts into driving open source developers from the mobile operating systems market. Through the use of offensive licensing agreements and the demand for unreasonable licensing fees, Microsoft is hindering creativity in the mobile operating systems market.... Through the use of oppressive licensing terms that amount to a veto power over a wide variety of innovative features in Android devices of all kinds, as well as its prohibitively expensive licensing fees, Microsoft is attempting to push open source software developers out of the market altogether.

Seems like a pretty accurate summary from what we've seen. It's really pretty sad when the focus of your business is hindering others, rather than innovating yourself.

from the don't-stop-'til-you-get-enough dept

Lots of folks sent in variations on the story last week that Apple was able to get a patent on the "slide to unlock" feature. Most of the submissions were outraged that this patent was granted, with many pointing to prior art from before the patent was filed. What most people missed was that this patent, 8,046,721 is actually a continuation patent from an earlier patent, 7,657,849.

The real issue here isn't just that Apple was able to patent something as simple as "slide to unlock," but how it shows the evils of double patenting and the use of continuation patents. We've pointed to problems with continuation patents in the past, in that they have been used to "submarine" legitimate inventions. You could just watch what others were doing in the space, and file a later "continuation" patent on your earlier patent, and have an earlier priority date, despite actually copying the work from others.

The M-CAM document linked above looks deeply at the patents in question, noting how the claims in Apple's original patent were completely rejected three separate times. For whatever reason, the USPTO refuses to really issue final rejections. So those desiring patents, can just keep adjusting and adjusting. The document also is left wondering how come the original claims were rejected while the final claims somehow made it through, noting that the changes seem meaningless:

As the report notes: "Evidently, restating the purpose of the patent  that one touches and drags the image continuously  makes it novel and nonobvious after three rejections."

First, there are over eight hundred relevant patents that precede the 721 by a year, that both Apple and Mr. Gutierrez fail to cite, though 38 of these are owned by Apple themselves. The entities in this relevant space are displayed visually to the right.

In addition, we have a list of 120 related patents, with priority dates of a year before both slide-to-unlock patents, that are in the public domain (read: this technology is FREE TO USE and NOT PATENTABLE AGAIN). A sample of these can be found in Appendix A.

But were not done. Going back to the patents the examiner used as evidence to reject the claims of the 721 patent  the Tokkonen
patent, which is owned by Nokia, and the Gauthey patent, which is owned by Asulab (the R&D division of Swatch Group)  we see
that they both deal with either inputting a security code or controlling lock functions. We look at one patent that is never
acknowledged by Apple (though its been cited by IBM, Microsoft and Nokia in their touch-screen patents), U.S. 6,209,104 which
actually provides context for the innovations that the examiner thought to be relevant against Apple  patents that include but are
far from limited to the patents the examiner actually considered.

In other words, this patent never should have been granted, and it used the almost always questionable "continuation" process to patent something fairly common, with lots of prior art. Good thing the patent reform bill that recently passed doesn't touch on any of this stuff.